If you are considering purchasing a business you should take the
time to define your “must have” and, to a lesser extent,
“ideal” business purchase criteria before you take your first
step to find a company to buy.
It is important to define what your absolute business purchase
criteria are and what attributes of a company are just “nice to
have”. Having these clearly defined and written will add a
significant amount of efficiency to the entire business
sourcing, definition, qualification and eventual purchase
process. If you choose to utilize a business acquisition
intermediary to assist you in finding your ideal acquisition
candidate, having this fundamental information clearly defined
will help them best serve your business purchase needs.
Business purchase criteria can be divided into two fundamental
categories, “practical” and “subjective”. Practical business
purchase criteria is best defined as purchase benchmarks that
make sense to use no matter what business purchase transaction
is made, these terms simply make practical sense. Subjective
purchase criteria, like the term suggests, are business
attribute measures and conditions that correlate with your own
personal purchase criteria or preferences, business
experiences, knowledge and risk/ reward tolerance levels.
Practical Business Purchase Criteria:
The potential list of business purchase criteria, terms and
conditions can be long. The best way to start the process of
defining your specific practical purchase criteria is to first
list the general practical criteria categories when seeking a
business to buy. These are categorically listed below, you may
want to consider customizing them for your own use:
Business type:
Service provider, manufacturer, distributor, wholesaler,
retailer, software or E commerce based, or any combination
thereof
Type of products or Services:
Proprietary or generic, industrial or consumer, technical or
non-technical, patent protected or not, software based or not,
regional or international demand
Business Existence Phase:
Start-up, early stage, emerging growth, established or
turnaround
Primary Market Focus:
Refer to the established Standard Industrial Classification
(S.I.C.) code list: Construction, Mining, Transportation,
communications, to name a few
Sales revenue and associated profit levels:
Common criteria to define company “size” thresholds, minimum
levels mostly, results defined for stipulated time frames,
audited or not
Business headquarter location:
Domestic only or international, regional or local
Type of business purchase transaction sought:
Complete buyout, recapitalization, bankruptcy revival,
investment only
Subjective Business Purchase Criteria
Defining subjective business purchase criteria, terms and
conditions is often an ongoing process, difficult to do in one
sitting because it truly is a “learn and accumulate as you go”
process. Listed below is a good start at defining some of the
most significant subjective criteria categories you might also
want to consider and edit for your own requirements:
* Voting control
* Availability of future business
buyers
* Owner reasons for sale
* Seller willingness to stay post
sale
* 5 year growth potential
* Quality of existing management
* Brand names
* % of total sales from
international
* Customer purchase loyalty
* Industry leadership position
* Real Estate issues
* Customer revenue concentration/
mix
* Pending litigation
* Existing binding contracts
* Company affiliations
* Level of technology protection
* Internet presence
* Image of the industry
* Cleanliness issues
* Success dependency on # of
employees
* Industry macro trends
* Labor force organization
* Non-compete terms
* Quality of board of directors
* $ level of assets
* Level of owner financing
* Earn out financing terms
* New products in the pipeline
* Seller integrity
* Seller personality
* Relocation requirements
* Level and terms of debt
* Purchase price calculation
* Ease of due diligence required
* Financials audited or not
* Location(s) of satellite
operations
* Status of computer systems
* Condition of manufacturing
equipment
* Level of competition
* Personal interest in their
markets
* “Fit” with existing business
* Liability of the products/
services
* Length Product life cycles
* Breadth and depth of offerings
* Hazardous waste issues
* Pending legislation
* Corporate culture issues
* Level of government intervention
* Seasonality of revenues
* Availability of critical raw
materials
* Representation/ Distribution
* Acquisition candidates in the
space
* Cash flow
* Capital required to grow the
business
* Customer support required
* Financial status of key
customers
* Current level of market share
* Customer churn rates
When you think about it and actually get involved in pursuing a
company purchase, you quickly realize that your success rate of
finding your “ideal” company to purchase is a direct result of
your ability to effectively locate viable potential acquisition
candidates and cost effectively DIS-qualify them via your own,
“well honed” business purchase criteria checklist.
Take the time and put in the effort required to finalize your
business purchase criteria early on in your business purchase
methodology. The old adage, “If you don’t know where you are
going, you are certain not to get there” applies in this
process. Finding a company to purchase that meets your EXACT
purchase criteria rarely happens, but as you learned here, it
all depends on the depth and breadth of your practical and
subjective business purchase criteria.
About the Author:
Mark Smock is President of
, the
FIRST international business buyer directory of its kind.
Business Buyer Directory provides a non-traditional means for
proactive business buyers to locate businesses for sale
worldwide that meet their exact registered purchase criteria.
